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Sometimes suggested to derive from disparaging stereotypes of the Welsh(“people from Wales”), though firm evidence of this derivation is lacking.[1] Compare gyp(“swindle”) (probably from gypsy(“Roma”)), and jew(“defraud”), from Jew.

↑ 1.01.1The American Heritage Guide to Contemporary Usage and Style (2005, ISBN0618604995: "Etymologists can find no firm evidence that the verb welsh, meaning "to swindle a person by not paying a debt" or "to fail to fulfill an obligation," is derived from Welsh, the people of Wales."